PayPal continues to expand its payments capabilities, with a
pair of announcements aimed at linking debit cards and reaching out
to the unbanked. The deals – an agreement with First Data’s STAR
network and another with the prepaid issuer Green Dot – each target
markets PayPal views as ripe for expansion.
The First Data announcement allows STAR
cardholders to easily link their debit cards to a PayPal account
online through the STAR Online Partner service.
Cardholders can enrol for a PayPal account
through their financial institution’s internet banking site and,
once registered, immediately use their debit card to fund their
PayPal account to make online purchases without having to enter
debit card account information or expose their debit card number to
merchants for each purchase.
Member financial institutions provide
authentication for the cardholder, adding an extra layer of
security to the account. The service also connects online banking
sites to PayPal, enabling consumers to create PayPal accounts
through their banks’ sites.
Sanjev Kriplani, senior director of PayPal’s
payments portfolio, told EPI the idea reflects a broader strategy
at PayPal of reaching out to underserved demographics.
“We are trying to address a consumer problem –
using a debit card online – in a way that opens online shopping up
to a whole new set of customers for PayPal, and that is what the
merchants want,” Kriplani said.
“It is creating a PayPal account directly from
the bank’s online banking site, and that is a huge opportunity for
First ATM network
Star is the first ATM network to
enrol in what PayPal calls its Debit Access service, which the
company plans to market to other networks. Julie Saville,
vice-president for the STAR network, said the deal was PayPal’s
brainchild but STAR quickly jumped on board when approached.
“It took us about five minutes to see the
value here,” Saville said.
“It just made perfect sense, and we quickly
formed project teams on each side and developed the product.”
Saville said that response from STAR’s
financial institution members has been enthusiastic.
“We worked with a number of our financial
institutions right from the start in advisory groups, and they saw
the benefits of the product right away,” she said.
“For STAR, it brings financial institutions a
new tool for their best customers – electronic banking customers.
It allows those cardholders to shop online while keeping their
debit card number offline. Online merchants also like it, and the
banks really prefer it as well.”
PayPal said the two agreements are aimed at
helping online merchants increase sales to underserved segments of
the consumer market. The deals underscore the increasing role that
alternative payments are playing in online payments, where the
dominance of traditional credit cards are challenged by a host of
competitors, some of whom have come and gone.
Online shoppers already use alternative
payments for about 15 percent of the $170 billion of goods and
services purchased online, according to a report by consultancy
Celent estimated that the major card brands
and their issuers stand to see some $345 million in volume lost to
the non-card players in 2010 and a whopping $1.7 billion in 2015.
First Data and PayPal are willing to bet that banks would rather
their consumers use an option like the Debit Access service than
lose the transaction to automated clearing house-driven alternative
Through the STAR channel, banks still get some
revenue, albeit miniscule compared to credit card interchange, and
also get brand placement on PayPal’s checkout page.
The Debit Access programme also addresses
consumer unease with using debit cards online. In their 2008 Study
of Consumer Payment Preferences, Hitachi Consulting and the Bank
Administration Institute found that consumers are not as
comfortable using a debit card for online shopping versus other
payment methods such as credit cards and prepaid cards.
The study, of which First Data was a sponsor,
also showed that while credit cards have the highest penetration of
methods on the internet, both debit cards and internet payment
services such as PayPal, have the second highest penetration levels
among online shoppers.
“Using money that you control online is what
consumers really want, but the reality is that the consumer much
prefers using the credit option merely because of the fraud issue,”
“The Debit Access product allows the consumer
to use cash on hand online without exposing their debit card.”
JM Associates Federal Credit Union, a member
of the STAR Network, participated in a pilot test of the programme
earlier this year.
“We want to be able to offer our members
security and peace of mind when making online purchases,” said Jim
Ryan, president and CEO of JM Associates. “The STAR Online Partner
programme allows us to provide that service, while at the same time
building member relationships through promotion of our brand with
The PayPal-STAR deal illustrates just how
quickly the walls between banks and non-bank competitors are being
torn down. Saville said such a deal would have been unthinkable a
few years ago.
“You have to leverage the strengths of
products out there and think about customer benefits,” Saville
The Green Dot partnership allows consumers
with Green Dot’s prepaid MoneyPak cards to fund their PayPal
accounts, opening the online payments market to people without bank
MoneyPak can be purchased with cash at a
retail store, and then the money can be loaded directly into a
PayPal account and used to shop online anywhere PayPal is accepted.
MoneyPak has been fully integrated into PayPal’s site, allowing
money to be added directly, without needing to link to any personal
MoneyPak is available at more than 40,000
stores nationwide, including WalMart, CVS pharmacy, Kmart, Rite Aid
and Walgreens and, of course, eBay.
“The idea is to get all of those cash lovers
an easy way to shop online,” PayPal’s Kriplani said. “It allows
cash-only consumers to go to 50,000-plus locations and exchange
cash for a card, jump online and load a PayPal account.
“Then there is absolutely no difference
between them and any other PayPal customer. This is all about
bringing added value to our merchants by bring new customers